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Deceased Borrowers

Rob Aberdein, Partner, examines some of the legal and practical complexities associated with taking properties into possession when the borrower has passed away.

Rob Aberdein, Partner, examines some of the legal and practical complexities associated with taking properties into possession when the borrower has passed away.

One of the most common and complex types of cases our Finance Litigation solicitors deal with, and also one that poses both practical and legal problems is where the borrower is deceased.

Calling Up Notices

Calling-up Notices must be properly served prior to any action being raised and the legislation does deal with the situation where a borrower has died.

One common occurrence that actually does not involve many problems is where there is a couple that are both borrowers under a mortgage. One borrower dies but the Title to the property has been drafted in such a way that the deceased’s share of the property automatically passes to their partner upon death (known as a “Survivorship Clause”). In such a case, a Calling-up Notice is simply served on the surviving borrower and the case can be dealt with in the standard way.

If there is no Survivorship Clause or there is only one borrower, the case will be picked up by our non-standard team. Where a borrower is deceased and has left ‘a representative’ the Calling-up Notice is served on the representative. This can actually be of great use, as the two month notice period can be used to make contact with the borrower’s representative. Often these cases can be managed practically; as the reason for the arrears on the account is that the estate of the dead borrower has simply not yet been dealt with. This can remove the need for any further court action which can be complicated and costly.

One problem with the term used in the legislation, ‘representative’, is that this word is not defined. We have taken the view that the interpretation of representative can be taken as one similar to any other court action in the Sheriff Court: representative is effectively any next-of-kin. Often, this will be the executor of the estate. If there is potentially more than one representative of the deceased, Notices should be served on all parties.

Another anomaly concerns what happens in the unfortunate circumstances where there is no representative. The legislation does cater for this scenario. The Calling-up Notice can be served directly on the Lord Advocate if the Lord Advocate’s Office is satisfied that the borrower has no representative. The Lord Advocate is the chief Legal Officer in Scotland for both criminal and civil matters (although it will most likely be a civil servant in the Lord Advocate’s office who deals with any such case). The circumstances are unusual as one would always hope that if a borrower died there will be some family member who can be the representative. We have dealt with one case recently which had extremely unfortunate circumstances as the borrower had died and left no representative. In these circumstances the case effectively needed to be dealt with as quickly and efficiently as possible as it was clear there was no one entitled to inherit the property and there could be issues with the security of the property. In these circumstances, sufficient evidence was provided to the Lord Advocate to allow them to accept service of the Calling-up Notice.

Court Action

Once the Calling-up Notices have expired, and if the account has not been dealt with and the lender still wishes to proceed to take steps to repossess the property, there are a number of different routes to raising a court action. The type of action that is raised will depend purely on the relevant circumstances of each case. Often, these circumstances dictate that an action similar to our standard action for repossession is raised against the representative. This is often required as there may still be someone living in the property. more often than not, the person who is still in the property is the representative of the deceased borrower and is aware of the proceedings.

Another type of action that has successfully been attempted in a deceased’s case is based on a particular interpretation of the Scottish repossession legislation. We have dealt with certain cases where we have successfully asked the court to declare that a property has lost its ‘residential purpose’ if no one has lived in the property for some time. For example, where a borrower has died and either left no representative or no one wishes to deal with the property. Often this is in the case of a negative equity situation and as such it is in everyone’s interest that the lender repossess the property as soon as possible. The advantage of this action has also been that we have successfully argued for reduced periods of notice (in terms of the relevant court rules) and therefore have obtained the relevant repossession order we require to sell the property without undue delay.

In summary, the ‘route for recovery’ very much depends on each case’s facts and circumstances. myself and my colleagues in our non-standard team would of course be happy to discuss each case in depth with you and we would ask that if you envisage any problems with deceased borrowers you speak with us at the earliest opportunity.